This chart shows the dollar getting weaker against the Brazilian real over the last year.Bob Pisani touched on this today but missed the bigger story here. CNBC Europe devoted a little more time. David Bloom from HSBC talked about this and the possible implications at length.
He said there is a carry trade starting to get more attention which is to buy Brazilian debt which yields 8.08%. He sees money coming out of Australia and the US, where ten year paper yields 4.23% and 5.2% respectively.
He might be right but it seems to be that Australia and Brazil each draw different types of foreign capital. Brazil is emerging and Oz is not. There very well could be some capital flow to Brazil from Australia and most clients have exposure to Brazilian equities should a move up come at Oz' expense but I have to think there is plenty of demand for highly rated sovereign debt yielding better than 5%.
1 comments:
Roger: RE - Brazil. If the recent political scandal unfolds (this is where top government officials from the Lula administration allegedly bribed parliment members in exchange for their votes) to a point where Lula is somehow implicated, the political fallout on the real could get ugly and the dollar could rise in light of the unfolding scandal. JMHO, and is something readers should be aware of as well when talking about capital flows and soverign debt.
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